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H.M. Ebrahim Sait Vs. the South India Industrials Limited - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1938Mad962; (1938)2MLJ568
AppellantH.M. Ebrahim Sait
RespondentThe South India Industrials Limited
Cases ReferredJacobs v. Booth
Excerpt:
.....a portion of the undistributed bonus but this claim amounting at best only to rs. he knows full well that as managing director he or the respondent can institute suits validly each by himself as they have done in the..........management as has been delegated to them by the directors can be conducted by either of them the suit instituted by the respondent would certainly be a validly instituted suit. we are told that as a matter of fact in the past both the respondent and the appellant have instituted suits on behalf of the company each by himself and this practice is relied on as lending additional support to the respondent's contention. we have no doubt that the resolution mentioned above read with clause 69(k) and 69(d) of the articles of association enables the respondent to institute suits validly on behalf of the company. in this view it is not necessary to canvass the question whether the respondent can rely on the special resolution of the company dated 30th july, 1937, authorising the company to.....
Judgment:

Madhavan Nair, Officiating, C.J.

1. This is an appeal against the order of Gentle, J., confirming the order of the Master giving the appellant (defendant in C.S. No. 167 of 1937) leave to defend on his furnishing security for a sum of Rs. 25,000 within a period of two months from the date of his order. The security has not been furnished. The appellant contends that leave to defend the suit should have been given to him unconditionally.

2. The circumstances are these. The respondent (plaintiff) is the South India Industrials, Ltd. The suit has been filed by; its Managing Director. The appellant is another Managing Director. The claim against the appellant is for a sum of Rs. 2,83,878-6-11 - the amount overdrawn by him from the company previous to the year 1928. There is no contest regarding this amount owing by the appellant to the company. In defence, the appellant raised various contentions, the most important of which is that the suit has not been filed with proper authority, inasmuch as the plaint purports to be signed by the Managing Director. His case on this point is that there is nothing to show that he has been properly authorised to file the suit on behalf of the company. So far as the merits of the claim are concerned, the defence are two fold. The appellant seeks to set-off against the amount claimed a considerable sum of money - we are told that it would amount to a little over a lakh of rupees - owing to him by the company in respect of unpaid bonus declared some years ago. He claims also to setoff another amount, namely, the amount which he as a shareholder might receive upon the winding up of the company. The third point raised is that the suit is barred by limitation.

3. On behalf of the company it is alleged that the proceedings of the Board of Directors will show that the Managing Director who has signed the plaint is authorised to institute suits on behalf of the company, that there is no substance in the two claims to set-off made by the appellant, for he has waived his right to claim the bonus, and that a shareholder cannot claim to set-off what he might eventually receive on a winding up of the company against the amount which he owes to the company. It is also urged by the respondent that the plea that the suit it barred by limitation cannot stand having regard to the letter written by the appellant acknowledging his liability to pay the amount claimed.

4. Both the Master and the learned Judge were not impressed with the defences raised, but as they did not desire to shut out altogether an opportunity for defending the suit the appellant was given permission to defend it provided he furnished security for the sum of Rs. 25,000. As already stated it is urged before us that in the circumstances of the case the Court is bound to grant the appellant permission to defend unconditionally.

5. Order 7, Rule 7(2) of the Original Side Rules says that:

Leave to appear and defend may be given unconditionally, or subject to such terms as to payment into Court, giving security, framing and recording issues or otherwise as the Master thinks fit....

6. Order 14, Rule 6 of the Rules of the Supreme Court says:

Leave to defend maybe given unconditionally, or subject to such terms as to giving security or time or mode of trial or otherwise as the Judge may think fit.

7. According to both the rules the Court has discretion to decide whether leave to defend should be given unconditionally or subject to terms. The important English decisions bearing on the question are referred to in the note to Order 14, Rule 6, in the Annual Practice. According to these decisions it may be stated that:

As a general rule where a defendant shows that he has a fair case for defence, or reasonable grounds for setting up a defence or even a fair probability that he has a bona fide defence, he ought to have leave to defend. See Saw v. Hakin (1888) 5 T.L.R. 72 and other cases referred to in the note.

8. In Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262 it is laid down that where there is a triable issue, though it may appear that the defence is not likely to succeed the defendant should not be shutout from laying his defence before the Court either by having judgment entered against him, or by being put under terms to pay money into Court as a condition of obtaining leave to defend. From this one is apt to understand as has been argued before us that all that is required to entitle the defendant to claim the privilege of being allowed to defend without any condition is (a mere allegation of facts which might amount to a defence); but that it is not so, is clear from the following observations of the Lord Chancellor (Halsbury):

There are some things too plain for argument, and where there were pleas put in simply for the purpose of delay which only added to the expense, and where it was not in aid of justice that such things should continue, Order 14 was intended to put an end to that state of things and to prevent sham defences from defeating the rights of parties by delay, and at the same time causing great loss to plaintiffs who were endeavouring to enforce their rights.

9. In other words, triable issues must be such as would show that the defendant has a bona fide defence. This aspect of the question is sometimes apt to be forgotten. Further it must be remembered that:

In deciding whether the defence set up is a real defence or not, all the circumstances must be looked at. Per Bowen, L.J., Blaiberg v. Abrahams (1934) 68 M.L.J. 16 : I.L.R. Mad. 116.

10. The decision in Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262 is followed in the decision in Sundaram Chettiar v. Valli Animal (1934) 68 M.L.J. 16 : I.L.R. 1934 Mad. 116 strongly relied upon by the appellant but it appears to us that in stating the rule the learned Judges, if we may say so respectfully, have not sufficiently emphasised the qualification that in order to bring the defendant within the rule which entitles him to ask for leave to defend without any condition the defence should be a bona fide one and not a mere attempt to prolong or delay the case, although it may be said that this aspect cannot be said to have been altogether overlooked because reliance has been placed by them on the decision of this Court in Periya Miyana Marakayar v. Subramania Aiyar (1923) 46 M.L.J. 255 where the following observations occur:

By triable issue is meant a plea which is at least plausible. The defendant must state what his defence is, and must as a rule bring something more before the Court to show that it is a bona fide defence, and not a mere attempt to gain time by getting leave to defend.

11. We do not understand the decision in Sundaram Chettiar v. Valli Ammal (1934) 68 M.L.J. 16 : I.L.R. 1934 Mad. 116 as laying down the broad proposition that the mere setting up of a defence, with the possibility of the defendant proving it, would by itself and without regard to other considerations, be enough to entitle the defendant to claim that leave should be given to him to defend the suit unconditionally. As we have pointed out the decision in Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262 itself makes this point clear. All the cases cited before us indicate that the defendant's case should be a bona fide one and should raise a triable issue which would show that he has a fair defence to put forward against the plaintiff's claim. It is not necessary that the Court should enter fully into the merits of the case and decide, but it should be satisfied that the defences raised show that there is a fair issue to be tried by a competent tribunal before leave to defend is given unconditionally.

12. We will now examine whether with respect to the contentions put forward by the appellant he has a fair case to set up against the respondent. Having regard to the facts the only point which appears to be of some importance is whether the suit has been properly filed on behalf of the company. The plaintiff-respondent is only one of the directors of the company. It is argued that neither Clause 69(k) of the Articles of Association which relates to the powers of the directors to institute suits nor the resolution passed by the company at its meeting of 31st July, 1937, that a

lawyer's notice be sent to Mr. H.M. Ebrahim Sait (defendant-appellant) demanding payment of his dues with interest within IS days otherwise to file a suit against him for the recovery of the amount,

authorises the plaintiff-respondent to institute this suit. Admittedly notice of the meeting which passed the resolution referred to was not given to the appellant by the directors, but having regard to another proceeding it is not necessary for the respondent to rely on the resolution to show that he had authority to institute the suit. CI. 69 (k) of the Articles of Association gives power to the directors of the company to institute, conduct, defend, compromise and abandon any legal proceedings, etc., etc. It is true that under this provision all the directors should join to validly institute a suit, but under Clause 69(d):

The directors may from time to time entrust to and confer upon a managing director for the time being such of the powers exercisable under the Articles of Association of the company by the directors as they may think fit....

13. It is argued for the respondent that the directors have entrusted him with full powers to institute suits on behalf of the company by himself. The proceedings of the directors dated 7th June, 1918, to which the present appellant along with others was a party show that it was

resolved that the Chairman M. Mohammad Hashim Sait (respondent) and M. Hajee Ebrahim Sait (appellant) be appointed Managing Directors of the company on a remuneration of Rs. 2,000 per mensem each to manage the business of the company either jointly or severally.

14. It follows that the two persons mentioned have power either jointly or severally to 'manage the business of the company'. It appears to us that managing the business of the company would include institution of suits as well, when it becomes necessary in the course of management to recover moneys due to the company. The present one is a case of this kind. No authority has been quoted to show that institution of legal proceedings would not fall within the meaning of the expression 'to manage the business of the company'. As such management as has been delegated to them by the directors can be conducted by either of them the suit instituted by the respondent would certainly be a validly instituted suit. We are told that as a matter of fact in the past both the respondent and the appellant have instituted suits on behalf of the company each by himself and this practice is relied on as lending additional support to the respondent's contention. We have no doubt that the resolution mentioned above read with Clause 69(k) and 69(d) of the Articles of Association enables the respondent to institute suits validly on behalf of the company. In this view it is not necessary to canvass the question whether the respondent can rely on the special resolution of the company dated 30th July, 1937, authorising the company to file a suit against the appellant in support of his argument. However, we may point out that in law, a meeting of directors is not duly convened unless due notice has been given to all the directors (see 5 Hals. 337) and if this is so, the resolution cannot be called in aid to support the respondent's position as admittedly no notice of the meeting was given to the appellant. But as we have stated, the other proceeding referred to give sufficient power to the respondent to institute the suit validly.

15. On the merits, the contentions of the appellant have no force at all. He may have a claim for a portion of the undistributed bonus but this claim amounting at best only to Rs. 1,00,000 and odd, has been given up by him by letter dated 8th June, 1927, wherein he says:

I find that there is absolutely no chance of recovering all or any portion of the bonus and dividends due to me and as such I hereby release my right to the same.

16. It is true that owing to some legal formalities not having been complied with it was resolved that the acceptance of this surrender might not be given effect to till the said legal formalities have been complied with, but we know nothing as to whether these have been complied with or not. The other directors also have surrendered their claims to bonuses and suitable entries have been made in the company's books in all cases. In the circumstances the appellant can have no right to set-off his claim to bonus as against the claim made by the company. With regard to the other claim to set-off, no authority has been shown that a shareholder is entitled to set-off what he might receive on a winding up against moneys due by him. The contention appears to be a novel one. Surely, the company cannot be expected to await the winding up for the recovery of the moneys due to it from the shareholders.

17. The plea of the bar of limitation stands on an equally slender basis. The appellant has acknowledged his liability to pay the amount and the letter Ex. A dated 18th November, 1934, will save the suit from this plea.

18. It is not necessary for us to go into the merits of the appellant's case, but from the facts which appear from the affidavits and the papers filed before us it is clear that these pleas are vexatious and not bona fide. He admits the correctness of the amount due from him and acknowledges also his liability to pay it. He knows full well that as managing director he or the respondent can institute suits validly each by himself as they have done in the past. He also knows that he surrendered his right to claim the bonus. In the circumstances, the pleas urged by him in defence of the suit cannot be considered to be bona fide but must be considered as being urged simply to gain time. For these reasons we confirm the order passed by Gentle, J. and dismiss the appeal with costs.

19. Time for furnishing security is extended for three weeks from this day.


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